Issue Wrap No. 461, March 22

A Close Look at CIC's Recent InvestmentsNews, cover~ China Investment Corporation (CIC), China's sovereign wealth fund, began to focus on investment in private equity funds and domestic heavy industry from the beginning of this year, according to a detailed list of the CIC investments made in the second half of 2009 acquired by the EO.~ According to the inventory list, on February 4th, CIC invested 1.52 billion US dollars for a 2.3 percent stake in British private equity fund Apax.~ On February 11th, the CIC joined hands with 7 other companies and spent 816 million US dollars to acquire a 15.12 percent shares in Zoomlion Heavy Industry Science & Technology Development Company.~ The list reveals that during the seven months from July 2009 to February of this year, CIC made a total of 16 investments, mainly focusing on overseas energy resources and real estate.~ According to the list, CIC spent nearly 4.05 billion US dollars investing in overseas energy acquisitions, which accounted for over 53 percent of the total funds invested over the seven month period.Original article: [Chinese]

China to Set Up Foreign Investment Review BoardNews, cover~ China's central government is considering setting up an agency similar to the US's Committee on Foreign Investment to manage and review any mergers involving foreign firms that could potentially impact on China's national security, a source revealed to an EO reporter.~ The agency could resemble a "inter-ministerial joint conference" and would likely include representatives from the National Development and Reform Commission (NDRC), Ministry of Industries and Information Technology (MIIT), Ministry of Commerce (MOC), Commission for Science and Industry for National Defense and other ministerial agencies. ~ The coordinating authority would likely hold vice-premier level status.~ The proposed new agency is likely to remain independent of the current body charged with implementing China's anti-monopoly investigations and will judge mergers and acquisitions depending on sector and the size of the investment.~ Greater attention will be paid to mergers concerning strategic or sensitive industries such as mining, cultural industries and heavy equipment manufacturing.Original article: [Chinese]

New Measure Set to Rein in End of Year Government SplurgeNews, page 3~ China's Ministry of Finance recently issued a notice to central ministries and commissions as well as local provinces, requiring them to begin reporting spending of money allocated to them under the annual fiscal budget on on a monthly basis.~ In the future, local governments along with central ministries and commissions will be required to fill in a form detailing monthly spending of their annual budgets. ~ The move is aimed at putting an end to the annual spike in government spending that occurs at the end of every year as government department's make sure they spend all the funds they've been allocated in that year's budget.~ According to an official from the Ministry of Finance, government spending in December usually accounted for over 20 percent of the annual total. Original article: [Chinese]

Environmental Tax DelayedNews, page 3~ Although the Ministry of Environmental Protection (MEP) has submitted a report advocating the introduction of a new environmental tax to the State Council, it's difficult to say whether or not the new tax will receive State Council approval this year.~ Currently, the Ministry of Environmental Protection hopes to include all the tax items related to the environment, such as a carbon tax, resource tax, energy tax etc, into one environmental tax. ~ The Ministry of Finance however has been studying the imposition of carbon tax for a long time and the National Development and Reform Commission has also been playing a leading role in studying the feasibility of introducing a tax on energy use. ~ More background on the difficulties associated with introducing an environmental tax here.Original article: [Chinese]

South West China Drought Won't Effect Grain PricesNews, page 5~ The severe drought that has struck south west China is likely to effect the country's total grain yield this year, as the drought has already damaged over 614 million hectares of crop land. ~ Some analysts have predicted that the drop off in production could lead a rise in domestic grain prices and contribute to accelerating inflation.~ However, both Li Xigui, a senior analyst at China National Grain and Oils Information Center, and an official from State Administration of Grain are both optimistic about grain yields in 2010.~ "The grains produced from these five drought-struck areas including only accounts for a small proportion of the country's total grain output," said an official from the State Administration of Grain.Original article: [Chinese]

SASAC Attempts to Improve Reputation of State-owned EnterprisesNews, page 7~ The EO understands that a brochure called "Face-to-Face Talk on Hot Topics Concerning State-owned Enteprises (SOEs)" was recently circulated within the State-owned Assets Supervision and Administration Commission and that the document was also passed around among SOEs, especially those enterprises under the administration of the central government.~ The brochure's author - SASAC's Publicity Department - published the brochure in an attempt to "guide public opinion" and improve the reputation of state-owned enterprises. ~ Recently, centrally-owned enterprises have been criticized for paying ridiculous amounts of money from prime land. Furthermore, SOEs have been on the end of criticism about the growing role of state-run companies in the wake of implementation of the country's four-trillion yuan stimulus package.~ In all, the brochure contained seven articles, those familiar with the publication say that the two articles entitled "Should SOEs Become Larger and Stronger?" and "The Fallacy of Monopoly SOE" appear to be direct responses to recent public criticism of the role of state-owned companies in China's economy.Original article: [Chinese]

Beijing Traffic Restrictions Likely to Remain in PlaceNation, page 9~ The Beijing government is currently evaluating the effectiveness of traffic restriction introduced in late 2008. Though the results of the study remain unknown, it's predicted that the restrictions will remain in place this year as the new rules have eased traffic congestion in the capital. ~ The traffic restrictions prohibit car-owners from driving their cars on certain days of the week according to the last digit of their license plate.~ However, people who oppose the policy argue that it infringes on an individual's rights and goes against the Beijing government's position of encouraging citizens to buy cars. Original Article: [Chinese]

Cinda Asset Management Companies Seeks to List Investment Firm ArmMarket, page 19~ Cinda Asset Management Corporation, one of four asset management companies established in 1999 to deal with the toxic assets of state banks, is preparing to establish an investment firm which will include its prime assets and list it on the stock exchange.~ The company plans to use the profits from its prime assets to gradually offset the losses produced from taking on the non-performing loans of the banks.~ In 1999, four asset management corporations (AMC): China Cinda Asset Management Corporation, China Huarong Asset Management Corporation, China Orient Asset Management Corporation and China Great Wall Asset Management Corporation were established to deal with 1.4 trillion yuan worth of toxic assets that had been expunged from the books of China's state banks in order to complete their market-oriented reform.~ In order to finance the project, four AMCs issued 811 billion yuan of bonds at that time and attained loans worth 1.2 trillion yuan from the central bank at a fixed interest rate of 2.5 percent per year.~ However, these four AMC are now insolvent. Available statistics reveal that interest payments owed by the four at the end of 2006 exceeded 200 billion yuan, while revenue sourced via the sale of assets was only 180 billion yuan.Original article:[Chinese]